The Cost of Living Adjustment that will be handed out as from 1 January 2024 is the highest ever to be given.

It is the second record COLA in a row. For 2023, workers were each given €9.90 extra per week in their salary. As from 2024, they will be getting €12.81 per week more.

Last year, when it had become clear that the COLA would have reached unprecedented heights, the social partners had come up with some ideas as to how the system could be changed. But the method was not touched, and here we are again with another record adjustment. This time, the social partners did not come up with ideas. It seems that they have accepted the process.

What they did suggest was that the COLA that is to be given should not be taxed. Their argument was that, if workers are to pocket a taxable €12.81 extra per week, part of the COLA would be lost in taxes, returned to the Government, and they would therefore only be getting a partial adjustment to make up for the rising inflation.

The Government did not listen to their pleas. The COLA will be added in full to workers’ salaries, and it will all be taxed.

Now, it must be said that each time the COLA was given in the past, it was always added to the total of taxable income. So there was nothing new in the fact that the COLA to be added as from 2024 will be taxed too. Apparently, the Government did not want to set a precedent – if it had accepted this time, it would have probably been asked to repeat the exercise next year and beyond. In the long run, this would have severely impacted its income from tax.

Having said this, it is high time that the social partners live up to their promise of discussing the subject – as starting from now, in the hope that an agreement can be reached long before next October arrives and the budget for 2025 will be presented.

The Government and the social partners all know the importance of stability. They keep mentioning the word often. But it must also be said that a €12.81 per week rise for every employee is not easily absorbed – and this argument is valid both for large and small companies. So having a system in place that is more structured – the proposal made by the Malta Employers Association is one example that comes to mind, but there are others – will certainly be of benefit to this “stability”.

It is easy to predict that these added costs will be passed on to consumers, which in turn would mean that prices will continue to rise in a vicious circle. It is also easy to predict that these costs will be added now, long before the first pay-cheque with the added COLA is received.

The Government is forecasting that inflation, next year, will go down from 5% to 3.7% as, in the words of Minister Clyde Caruana, prices of food items and services will continue to rise but at a more moderate pace. Let’s see if this estimate turns out to be true, as this would mean that a downward trend would have started.

Then again, inflation has been contained largely because the price of fuel and energy has been subsidised for the last two years, with the Government planning to continue doing so at least until the end of 2024, in spite of the European Commission’s call for the Government to phase out the subsidies.

So it’s a question of finding the right balance. We will know more when the budget for 2025 will be presented.